In this video, Inner Circle Trader (Michael J. Huddleston) explains about the weekly Commitment Of Traders (COT) report. The report lists aggregate short and long positions for three distinct groups of traders: * Non-reportable / small speculators / retail traders / "dumb money": the least informed and least experienced traders, most likely to make losing trades. * Non-commercials / large speculators / "informed money": the institutional traders are trend-following on the market. They take a long-term approach to trading, so short-term losses don't matter much to them. * Commercials / hedgers / "smart money": They have a big understanding of and influence over where the market goes. The commercials and non-commercials have a habit of taking opposing positions in the market, retail traders (on aggregate) fall in the middle. Commercial traders buy regularly while the market goes down and they start selling their positions while the market goes back up. They sell their bought positions at a higher price than they bought them. Because of their deep pockets, they can absorb the short-medium term loss to make a long-term profit. Tracking what commercial traders do gives a good indication of where the market is heading. If the commercial traders have a 12 month extreme net long or short, this can indicate if the market is overbought or oversold and about to reverse the trend. An extreme net long indicates commercial traders have been buying for a long time and prices have reached a low point. The prices are about to go up again. At this point, you want to get out of your own short positions and go long. An extreme net short gives the opposite signal. The take-away from this is not to blindly follow the COT data, but use it as a strong indicator where the large traders are going. Trade in the direction of the most recent 12 month commercial net positions. If they are going long, you trade long. If they are going short, you trade short. When they reach extreme long/short positions, close your positions and wait for them to reverse trend. Once they have reversed the trend, tag along again for the ride.